Chapter 11: Theories of Fixed and Circulating Capital.
Ricardo

Ricardo introduces the distinction between fixed and circulating capital
merely for the purpose of illustrating the exceptions to the rule of value,
namely, cases where the rate of wages affects prices. The discussion of
this point is reserved for Book III. [Karl Marx, Capital, Vol. III,
Ch. XI, pp. 196-200. — Ed.]

But the original lack of clarity is apparent at the outset in
the following immaterial juxtaposition:

“This difference in the degree of durability of fixed capital, and this variety in the proportions in which the two sorts of capital may be combined.”[25]

And if we ask him which two sorts of capital he is referring to,
we are told:

“The proportions, too, in which the capital that is to support
labour, and the capital that is invested in tools, machinery, and buildings,
may be variously combined.”[26]

In other words, fixed capital equals instruments of labour and circulating capital equals capital laid out in labour. “Capital that is to support labour” is a senseless term culled from Adam Smith. On the one hand the circulating capital is
here lumped together with the variable capital, i.e., with that part of
productive capital which is laid out in labour. But on the other hand doubly
erroneous definitions arise for the reason that the antithesis is not derived
from the process of self-expansion of value — constant and variable capital
— but from the process of circulation (Adam Smith’s old confusion).

First: The differences in the degree of durability of fixed capital
and the difference arising from capital being composed of constant and
variable capital are conceived as being of equal significance. But the
last-named difference determines the difference in the production of surplus-value;
the first named on the other hand, so far as the process of self-expansion
is concerned, refers only to the manner in which a particular value is
transferred from a means of production to the product; so far as the process
of circulation is concerned, this difference refers only to the period
of the renewal of the expended capital, or, from another point of view,
to the time for which it has been advanced. If instead of seeing through
the internal machinery of the capitalist process of production one considers
merely the accomplished phenomena, then these distinctions actually coincide.
In the distribution of the social surplus-value among the various capitals
invested in different branches of industry, the differences in the different
periods of time for which capital is advanced (for instance the various
degrees of durability of fixed capital) and the different organic compositions
of capital (and therefore also the different circulations of constant and
variable capital) contribute equally toward an equalisation of the general
rate of profit and the conversion of values into prices of production.

Secondly: From the point of view of the process of circulation,
we have on one side the instruments of labour — fixed capital, on the
other the material of labour and wages — circulating capital. But from
the point of view of the process of labour and self-expansion, we have
on the one side means of production (instruments of labour and material
of labour) — constant capital; on the other, labour-power — variable
capital. It is wholly immaterial for the organic composition of capital
(Buch I, Kap. XXIII, 2, p. 647) [English edition, Volume I, Ch. XXV, 2, pp. 622-23.
— Ed.] whether a specified quantity of value of constant capital
consists of many instruments of labour and little material of labour or
of much material of labour and few instruments of labour, while everything
depends on the ratio of the capital laid out in means of production to
that laid out in labour-power. Vice versa: from the point of view of the
process of circulation, of the distinction between fixed and circulating
capital, it is just as immaterial in what proportions a particular quantity
of value circulating capital divides into material of labour and wages.
From one of these points of view the material of labour is classed in the
same category with the instruments of labour, as opposed to the capital-value
laid out in labour-power; from the other view-point the part of capital
laid out in labour-power ranges with that laid out in material of labour,
as opposed to that laid out in instruments of labour.

For this reason the part of the capital-value laid out in material
of labour (raw and auxiliary materials) does not appear on either side
in Ricardo. It disappears entirely; for it will not do to class it with
fixed capital, because its mode of circulation coincides entirely with
that of the part of capital laid out in labour-power. And on the other
hand it should not be placed alongside circulating capital, because in
that event the identification of the antithesis of fixed and circulating
capital with that of constant and variable capital, which had been handed
down by Adam Smith and is tacitly retained, would abolish itself. Ricardo
has too much logical instinct not to feel this, and for this reason that
part of capital vanishes entirely from his sight.

It is to be noted at this point that the capitalist, to use the
jargon of Political Economy, advances the capital laid out in wages for
various periods of time, according to whether he pays these wages weekly,
monthly, or quarterly. But as a matter of fact the reverse takes place.
It is the labourer who advances his labour to the capitalist for a week,
a month, or three months, according to whether he is paid by the week,
by the month, or every three months. If the capitalist bought labour-power
instead of paying for it, in other words, if he paid the labourer his wages
in advance for a day, a week, a month, or a quarter, he would be justified
in claiming that he advanced wages for those periods. But since he pays
after the labour has lasted for days, weeks, or months, instead
of buying it and paying for the time which it is to last, the whole thing
amounts to a capitalist quid pro quo, and the advance which the
labour gives to the capitalist in labour is turned into an advance of money
given to the labourer by the capitalist. It does not alter the case in
the least that the capitalist gets back the product itself or its value
(together with the surplus-value embodied in it) from circulation, or realises
it, only after a relatively long or short period of time, according to
the different periods required for its manufacture or for its circulation.
The seller of a commodity does not care a rap what its buyer is going to
do with it. The capitalist does not get a machine cheaper because he must
advance its entire value at one shot, while this value returns to him only
gradually and piecemeal from circulation; nor does he pay more for cotton
because its value enters entirely into the value of the product into which
it is made and is therefore replaced fully and at one time by the sale
of the product.

Let us return to Ricardo.

1. The characteristic feature of variable capital is that a definite,
given (and as such constant) part of capital, a given sum of values (assumed
to be equal in value to the labour-power, although it does not matter here
whether the wages are equal, more or less than the value of the labour-power)
is exchanged for a self-expanding, value-creating power, viz., labour-power,
which not only reproduces its value, paid by the capitalist, but simultaneously
produces a surplus-value, a value not existing previously and not paid
for by any equivalent. This characteristic property of the part of capital
laid out for wages, which distinguishes it toto coelo as variable
capital from constant capital, disappears whenever the part of capital
expended on wages is considered solely from the point of view of the process
of circulation and thus appears as circulating capital in contradistinction
to the fixed capital laid out in instruments of labour. This is apparent
if only from the fact that it is then brought under one head — that of
circulating capital — together with the component part of the constant
capital laid out in material of labour and opposed to the other component
of the constant capital — that laid out in instruments of labour. Surplus-value,
hence the very circumstance which converts the laid-out sum of value into
capital, is entirely ignored thereby. Similarly the fact is ignored that
the part of the value added to the product by the capital laid out in wages
is newly produced (and therefore really reproduced), while the part of
the value which the raw material adds to the product is not newly produced,
not really reproduced, but only preserved in the value of the product,
conserved, and hence merely reappears as a component part of the value
of the product. The distinction, as now seen from the point of view of
the contrast between fixed and circulating capital, consists simply in
this: The value of the instruments of labour used for the production of
a commodity enters only partially into the value of the commodity and is
therefore only partially replaced by its sale, hence is replaced altogether
only piecemeal and gradually. On the other hand the value of the labour-power
and subjects of labour (raw materials, etc.) used for the production of
a commodity entirely enters into it and is therefore entirely replaced
by its sale. In this respect, as far as the process of circulation is concerned,
one part of capital presents itself as fixed, the other as fluent, or circulating.
In both cases it is a matter of transferring given, advanced values to
the product and of their replacement by the sale of the product. The difference
now depends only on whether the transfer of value, and consequently the
replacement of the value, takes place piecemeal and gradually, or in bulk.
By this means the distinction between the variable and constant capital,
which decides everything, is blotted out, hence the whole secret of the
production of surplus-value and of capitalist production, the circumstances
which transform certain values and the things in which they present themselves
into capital, are obliterated. All constituent parts of capital are then
distinguished merely by their mode of circulation (and, of course, circulation
of commodities concerns itself solely with already existing given values);
and the capital laid out in wages shares a peculiar mode of circulation
with the part of capital laid out in raw materials, semi-finished products,
auxiliary materials, as opposed to the part of capital laid out in instruments
of labour.

It is therefore understandable why bourgeois Political Economy
instinctively clung to Adam Smith’s confusion of the categories “constant
and variable capital” with the categories “fixed and circulating,” and repeated it parrotlike, without criticism, from generation to generation
for a century. The part of capital laid out for wages is no longer in the
least distinguished by bourgeois Political Economy from the part of capital
laid out for raw materials, and differs only formally from constant capital
— on the point of whether it is circulated piecemeal or in one lump by
the product. Thereby the basis for an understanding of the real movement
of capitalist production, and hence of capitalist exploitation, is buried
at one stroke. It is but a question of the reappearance of advanced values.

In Ricardo the uncritical adoption of the Smithian confusion is
more disturbing not only than in the later apologists, in whom the confusion
of ideas is rather something not disturbing, but than in Adam Smith himself,
because Ricardo, in contrast to the latter, is more consistent and incisive
in his analysis of value and surplus-value, and indeed upholds the esoteric
Adam Smith against the exoteric Adam Smith.

Among the physiocrats there is no such confusion. The distinction
between avances annuelles and avances primitives refers only
to the different periods of reproduction of the different component of
capital, especially of agricultural capital, while their views on the production
of surplus-value form a part of their theory that is independent of these
distinctions, a part they hold up as the strong point of the theory. The
formation of surplus-value is not explained as originating from capital
as such, but is attributed to one particular sphere of the production of
capital, agriculture.

Secondly. The essential point in the definition of variable capital
— and therefore for the conversion of any sum of values into capital —
is that the capitalist exchanges a definite, given (and in this sense constant)
magnitude of value for value-creating power, a magnitude of value for the
production, self-expansion, of value. Whether the capitalist pays the labourer
in money or in means of subsistence does not affect this basic definition.
It only alters the mode of existence of the value advanced by the capitalist
which in one case exists in the form of money for which the labourer buys
himself his means of subsistence in the market, in the other case in the
form of means of subsistence which he consumes directly. Developed capitalist
production rests indeed on the assumption that the labourer is paid in
money, just as in general it presupposes the process of production brought
about by the process of circulation, hence presupposes the monetary system.
But the creation of surplus-value — and consequently the capitalisation
of the advanced sum of values — has its source neither in the money-form
of wages nor in the form of wages paid in kind, nor in the capital laid
out in the purchase of labour-power. It arises out of the exchange of value
for value-creating power, out of the conversion of a constant into a variable
magnitude.

The greater or smaller fixity of the instruments of labour depends
on their degree of durability, hence on a physical property. Other circumstances
being equal, they will wear out sooner or later, will therefore function
a longer or a shorter time as fixed capital, according to their durability.
But it is by no means solely on account of this physical property of durability
that they function as fixed capital. The raw material in metal factories
is just as durable as the machines used in manufacturing, and more durable
than many component parts of these machines, such as leather and wood.
Nevertheless the metal serving as raw materials forms a part of the circulating
capital, while the instrument of labour, although probably built of the
same metal, is a part of the fixed capital when in use. Consequently it
is not because of the material, physical nature, nor the relatively great
or small speed with which it wears out that a metal is put now in the category
of fixed, now in that of circulating capital. This distinction is rather
due to the role played by it in the process of production, being a subject
of labour in one case and an instrument of labour in the other.

The function of an instrument of labour in the process of production
requires that on the average it should serve for a longer or shorter period
in ever renewed labour-processes. Its very function therefore prescribes
that the stuff of which it is composed should be more or less durable.
But it is not the durability of the material of which it is fabricated
that by itself makes it fixed capital. The same stuff, when raw material,
becomes circulating capital, and among economists who confuse the distinction
between commodity-capital and productive capital with the distinction between
circulating and fixed capital, the same stuff, the same machine, is circulating
capital as product and fixed capital as instrument of labour.

Although it is not the durability of the material of which it
is fabricated that makes an instrument of labour fixed capital, nevertheless
its role as such an instrument requires that it should be composed of relatively
durable material. The durability of its material is therefore a condition
of its function as an instrument of labour, and consequently the material
basis of the mode of circulation which renders it fixed capital. Other
things being equal, the higher or lower degree of wear and tear of the
stuff it is made of impresses upon it in a higher or lower degree the stamp
of fixedness, is therefore very closely interwoven with the quality of
being fixed capital.

If the part of capital laid out in labour-power is considered
exclusively from the point of view of circulating capital, hence in contrast
with fixed capital, and if consequently the distinctions between constant
and variable capital are lumped with those between fixed and circulating
capital, then it is natural — supposing that material reality of the instrument
of labour forms an essential basis of its character of fixed capital —
to derive its character of circulating capital, in contrast with the fixed
capital, from the material reality of the capital invested in labour-power,
and then again to determine the circulating capital with the aid of the
material reality of the variable capital.

The real substance of the capital laid out in wages is labour
itself, active, value-creating labour-power, living labour, which the capitalist
exchanges for dead, materialised labour and embodies in his capital, by
which means, and by which alone, the value in his hands turns into self-expanding
value. But this power of self-expansion is not sold by the capitalist.
It is always only a constituent part of his productive capital, the same
as his instruments of labour; it is never a part of his commodity-capital,
as for instance the finished product which he sells. In the process of
production the instruments of labour, as components of the productive capital,
are not opposed to labour-power as fixed capital any more than materials
of labour and auxiliary substances are identified with it as circulating
capital. Labour-power confronts both of them as a personal factor, while
those are objective factors — speaking from the point of view of the labour-process. Both of them stand opposed to labour-power, as constant capital to variable
capital — speaking from the point of view of the process of self-expansion
of value. Or, if mention is to be made here of a material difference, so
far as it affects the process of circulation, it is only this: It follows
from the nature of value, which is nothing but materialised labour, and
from the nature of active labour-power, which is nothing but labour in
process of materialisation, that labour-power continually creates value
and surplus-value during the time it functions; that what on the part of
labour-power appears as motion, as a creation of value, appears on the
part of its product in a state of rest, as created value. If the labour-power
has performed its function, capital no longer consists of labour-power on
the one side and means of production on the other. The capital-value that
was invested in labour-power is now value which ( + surplus-value) was added
to the product. In order to repeat the process, the product must be sold
and new labour-power constantly bought with the proceeds and incorporated
in the productive capital. This then gives to the part of capital invested
in labour-power, and to that invested in material of labour, etc., the
character of circulating capital as opposed to the capital remaining fixed
in the instruments of labour.

But if, on the contrary, the secondary definition of the circulating
capital, which it shares with a part of the constant capital (raw and auxiliary
materials), is made the essential definition of the part of capital laid
out in labour-power, to wit, that the value laid out in it is transferred
in full to the product in whose creation it is consumed, and not gradually
and piecemeal as in the case of the fixed capital, and that consequently
it must be replaced in full by the sale of the product — then the part
of the capital laid out in wages must likewise consist, materially, not
of active labour-power but of the material elements which the labourer
buys with his wages, i.e., it must consist of that part of the social commodity-capital
which passes into the consumption of the labourer, viz., of means of subsistence.
In that case the fixed capital consists of the more slowly perishable instruments
of labour which therefore have to be replaced more slowly, and the capital
laid out in labour-power consists of the means of subsistence, which must
be replaced more rapidly.

However, the border-line between greater or lesser perishableness
is very vague and indistinct.

“The food and clothing consumed by the labourer, the buildings
in which he works, the implements with which his labour is assisted, are
all of a perishable nature. There is however a vast difference in the time
for which these different capitals will endure: a steam-engine will last
longer than a ship, a ship than the clothing of the labourer, and the clothing
of the labourer longer than the food which he consumes.”[27]

Ricardo forgets to mention the house in which the labourer lives,
his furniture, his tools of consumption, such as knives, forks, dishes,
etc., all of which have the same quality of durability as the instruments
of labour. The same things, the same kinds of things, appear in one place
as articles of consumption and in another as instruments of labour.

The difference, as stated by Ricardo, is this:

“According as capital is rapidly perishable and requires to be frequently reproduced, or is of slow consumption, it is classed under the heads of circulating or fixed capital.”[28]

And he adds this note:

“A division not essential, and in which
the line of demarcation cannot be accurately drawn.”[29]

Thus we have once more happily arrived in the camp of the physiocrats,
where the distinction between avances annuelles and avances primitives was one referring to the time of consumption, and consequently also to
the different times of reproduction of the capital employed. Only, what
with them constitutes an important phenomenon of social production and
is described in the Tableau Économique in connection with the process
of circulation, becomes here a subjective and, in Ricardo’s own words,
superfluous distinction.

Once the part of capital invested in labour differs from that
invested in instruments of labour only by its period of reproduction and
hence its term of circulation, and once one part consists of means of subsistence
and the other of instruments of labour so that those differ from these
only in being more rapidly perishable, there being various degrees of durability
within the first group itself, all differentia specifica between
capital invested in labour-power and capital invested in means of production
is naturally obliterated.

This wholly contradicts Ricardo’s doctrine of value, likewise
his theory of profit, which is in fact a theory of surplus-value. In general
he considers the distinction between fixed and circulating capital only
to the extent that different proportions of both of them in equally large
capitals invested in different branches of production influence the law
of value, particularly the extent to which an increase or decrease of wages
in consequence of these conditions affects prices. But even within this
restricted investigation he commits the gravest errors on account of his
confusing fixed and circulating with constant and variable capital. Indeed,
he starts his analysis on an entirely wrong basis. In the first place,
in so far as the part of the capital-value laid out in labour-power has
to be classified under the head of circulating capital, the definitions
of circulating capital itself are wrongly developed, particularly the circumstances
which place the part of capital laid out in labour under this head. In the
second place there is a confusion of the definition according to which
the part of capital invested in labour is variable capital with the definition
according to which it is circulating capital, as opposed to fixed capital.

It is evident at the outset that the definition of capital invested
in labour-power as circulating or fluent capital is a secondary one, obliterating
its differentia specifica in the process of production. For in this
definition, on the one hand, the capitals invested in labour are of the
same importance as those invested in raw material, etc. A classification
which identifies a part of the constant capital with the variable capital
does not deal with the differentia specifica of variable capital
in opposition to constant capital. On the other hand the parts of capital
laid out in labour are indeed opposed to those invested in instruments
of labour, but not in the least with reference to the fact that these parts
enter into the production of value in quite different ways, but with reference
to the fact that both transfer their value to the product, but in different
periods of time.

In all of these cases the point at issue is how a given
value, laid out in the process of production of commodities, whether it
be wages, the price of raw materials, or that of instruments of labour,
is transferred to the product, hence is circulated by the product, and
returned to its starting-point by the sale of the product, or is replaced.
The only difference lies here in the “how,” in the particular manner of the transfer, and therefore also of the circulation of this value.

Whether the price of labour-power previously stipulated by contract
in each individual case is paid in money or means of subsistence does not
alter in any way its character of being a fixed price. However it is evident
in the case of wages paid in money that the money itself does not pass
into the process of production in the way that the value as well as the
material of the means of production do. But if on the other hand the means
of subsistence which the labourer buys with his wages are directly classed
in the same category, alongside raw materials, etc., as the material form
of circulating capital and are opposed to the instruments of labour, then
the matter assumes a different aspect. If the value of these things, of
the means of production, is transferred to the product in the labour-process,
the value of those other things, the means of subsistence, reappears in
the labour-power that consumes them and is likewise transferred to the
product by the functioning of this power. In both these cases it is equally
a question of the mere reappearance, in the product, of the values advanced
during production. (The physiocrats took this seriously and therefore
denied that industrial labour created surplus-value.) Thus the previously
quoted [Karl Marx, Capital, Vol. I, p. 207, Note 3. — Ed.]
passage from Wayland.

“The form, however, is of no consequence... The
various kinds of food, clothing, and shelter, necessary for the existence
and comfort of the human being, are also changed. They are consumed, from
time to time, and their value reappears...” (Elements of Pol. Econ.,
pp. 31, 32.)

The capital-values advanced for production in the form of
both means of production and means of subsistence reappear here equally
in the value of the product. Thus the transformation of the capitalist
process of production into a complete mystery is happily accomplished and
the origin of the surplus-value existing in the product is entirely withdrawn
from view.

Furthermore this brings to completion the fetishism peculiar to
bourgeois Political Economy, the fetishism which metamorphoses the social,
economic character impressed on things in the process of social production
into a natural character stemming from the material nature of those things.
For instance, “instruments of labour are fixed capital,” is a scholastic
definition, which leads to contradictions and confusion. Just as was demonstrated
in the case of the labour-process (Buch I, Kap. V), [English edition: Ch.
VII. — Ed.] that it depends wholly on the role which the material
components play in a particular labour-process, on their function — whether
they function as instruments of labour, material of labour, or products
— so instruments of labour are fixed capital only if the process of production
is really a capitalist process of production and the means of production
are therefore really capital and possess economic definiteness, the social
character of capital. And in the second place, they are fixed capital only
if they transfer their value to the product in a particular way. If not,
they remain instruments of labour without being fixed capital. In the same
way if auxiliary materials like manure give up value in the same peculiar
manner as the greater part of the instruments of labour, they become fixed
capital although they are not instruments of labour. It is not a question
here of definitions, which things must be made to fit. We are dealing here
with definite functions which must be expressed in definite categories.

If to be capital laid out in wages is considered one of the qualities
of means of subsistence as such under all circumstances, then it will also
be a quality of this “circulating” capital “to support labour.” (Ricardo, p. 25.) If the means of subsistence were not “capital” they would not support labour-power; whereas it is precisely their quality of capital that endows them with the faculty of supporting capital by foreign labour.

If means of subsistence as such are circulating capital — after
the latter had been converted into wages — it follows further that the
magnitude of wages depends on the ratio of the number of labourers to the
given amount of circulating capital — a favourite economic proposition
— while as a matter of fact the quantity of means of subsistence withdrawn
from the market by the labourer, and the quantity of means of subsistence
available for the consumption of the capitalist, depend on the ratio of
the surplus-value to the price of labour.

Ricardo, like Barton, [29a] everywhere confounds
the relation of variable to constant capital with that of circulating to
fixed capital. We shall see later to what extent this vitiates his investigation
of the rate of profit. [Karl Marx, Capital, Vol. III, Ch. I-III.
— Ed.]

Ricardo furthermore identifies the differences which arise in
the turnover from other causes than the distinction between fixed and circulating
capital with this distinction:

“It is also to be observed that the circulating
capital may circulate, or be returned to its employer, in very unequal
times. The wheat bought by a farmer to sow is comparatively a fixed capital
to the wheat purchased by a baker to make into loaves. The one leaves it
in the ground, and can obtain no return for a year; the other can get it
ground into flour, sell it as bread to his customers, and have his capital
free, to renew the same, or commence any other employment in a week.”[30]

It is characteristic here that wheat, although not serving as
a means of subsistence but as raw material when used for sowing, is in
the first place circulating capital, because in itself it is a means of
subsistence, and in the second placed fixed capital, because its return
takes over a year. However it is not only the more or less slow or rapid
return which makes a fixed capital of a means of production, but also the
definite manner in which it transfers its value to the product.

The confusion created by Adam Smith has brought about the following
results:

1.
The distinction between fixed and circulating capital is confused
with that between productive capital and commodity-capital. For instance
a machine is considered circulating capital when in the market as a commodity,
and fixed capital when incorporated in the process of production. Moreover,
it is absolutely impossible to ascertain why one kind of capital should
be more fixed or circulating than another.

2.
All circulating capital is identified with capital laid out
or to be laid out in wages. This is so in John Stewart Mill, [J. St. Mill,
Essays on Some Unsettled Questions of Political Economy, London,
1844, p. 164. — Ed. ] and others.

3.
The distinction between variable and constant capital, which
was previously mistaken by Barton, Ricardo, and others for that between
circulating and fixed capital, is finally wholly reduced to this last-named
distinction, for instance in Ramsay, where all means of production, raw
materials, etc., as well as instruments of labour are fixed capital, and
only capital laid out in wages is circulating capital. [G. Ramsay, An
Essay on the Distribution of Wealth, Edinburgh, 1833, pp. 21-24. —
Ed.] But because the reduction takes place in this form, the real
distinction between constant and variable capital is not understood.

4.
The latter-day British, especially Scotch, economists, who
look upon all things from the inexpressibly narrow-minded point of view
of a bank clerk, such as MacLeod, [H. D. MacLeod, The Elements of Political
Economy, London, 1858, pp. 76-80. — Ed.] Patterson, [R. H.
Patterson, The Science of Finance. A Practical Treatise, Edinburgh and
London, 1868, pp. 129-44. — Ed.] and others, transform the distinction between fixed and circulating capital into one between money at call and money not at call.

Notes

29aObservations on the Circumstances Which Influence the Condition of the Labouring Classes of Society,
London, 1817. A pertinent passage is quoted in Book I, p. 655, Note 79.
[English edition: p. 631, Note 1.]